An income equalisation policy and social welfare: beyond inequality

Abstract

The inequality of income distribution is one of the most serious problems to our society. Traditional economics proposes the tax increase on wealthy classes and transfers its revenue to low income group. This is the most appropriate one. But, the total of this and donation will unfortunately be insufficient. For procuring funds to ease inequality, I propose to erase the government bonds which are already purchased and owned by the central bank. The government, then, issues new government bonds (the total sum of which should be less than erased one) to expend for equalization. The amount of new government bonds is determined from the maximisation of social welfare function concerning to income distribution. By this policy, first, the socially optimal equalization will be attained; second, through the productivity increase caused by the expenditure for low income group, the national economy will grow; third, because of the erasure process, the government bonds outstanding will not increase. In these days of pandemic, much more government expenditures are needed and thereby government deficits are piled up. I think the valid policy is not the heavy tax increase, but the execution of erasure of government bonds outstanding and to equalize income distribution.